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Tuesday, February 02, 2010

Tighten Your Belts

Remember last week when the President told us DC had to tighten their belts, and feel the pain of the rest of us.
He lied.
He's taken his belt off, put on a pair of over sized sweat pants, and is doing a tour of the DC area All You Can Eat buffets.

That wasn't his only less than intellectually honest statement concerning his budget. In trying to explain away $1.56 Trillion in debt, Mr. Obama claims that he inherited a $1 trillion deficit. That's true, except the real "long term" deficit was about $560 in Bush's last budget. The rest was one time bank and auto bailout money.

Obama doubled down on that in his first budget, with $787 billion (now $850B) in stimulus money to come up with a $1.43 trillion dollar deficit for FY 2010, or a real deficit of about $640B. The 2011 budget he has proposed now has nearly $1.6 trillion in debt, yet no "one shot" stimulus type budget buster. So in just 3 fiscal years he's found a way to just about triple the real deficit.

But it's not just that deficit increase, included in that budget is tax increase averaging over $110 billion per year, meaning he's accelerating spending even faster than it looks like when you just see the raw numbers.

Most folks with any common sense would look at the results of the bail out era and realize that the bailouts and stimulus haven't worked. Stabilizing automakers and banks was supposed to trickle down to other manufacturers and employers, and make money available for hiring. Yet unemployment is up about 40% since we went Kenysian on the economy. Another huge dose of federal spending isn't going to fix that. It will make it worse.

The stimulus hasn't created private sector jobs, it's expanded government jobs, which just means the government needs more money to satisfy itself. Most of those jobs are at the state and local level, so after you get the whammy of new federal spending, your state and local taxes will have to go up to pay for those jobs no longer funded by the feds.

The tax increases are targeted directly at the group that creates self sustaining private sector jobs. 75% of the people who make over $200,000 a year are self employed as Type S corporations, small businesses. What do those folks do when they see an extra $8-10K a year in taxes? They either don't hire more people; and unemployment stays high; don't buy new equipment for their business; which impacts other businesses; or just shut down because the tax increases don't make running their own business worthwhile anymore.
The President's budget has a $5000 tax credit for hiring people, but in the small business world it will mean nothing, it won't cover the tax increases in the budget, or come close to the expenses of a new employee in most businesses. Large corporations might benefit some from it, but it will be negligible for them, also. The place I'm working this week found it cheaper to cut two full time jobs and have the rest of the folks in that group work four hours of overtime a week. I doubt a $5K tax credit would have kept those two on the job.
Even if those seeing the increases do as the Kenysians would like to think, and just take it out of their own pocket, it still has an impact. If you remove $150 from my wallet every week how do I adjust? Well, I probably go out to dinner 2 less times per week and kill a trip to the book store.
So what I've really done is taken that money away from other businesses. Multiply that by a few million people and all of the sudden it means unemployed waiters, waitresses, bus boys and cooks and clerks. As those restaurants and other businesses close it means less local tax income, since empty commercial real estate pays a lower rate than property generating income.
Or maybe they just won't invest as much, which means that the $110 billion in taxes doesn't go into the markets, keeping them lower, and every one's 401K suffers.
Remind me again why these tax increases are going to help.

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